(Washington) The American growth must remain positive without being too strong to be able to curb inflation, indicated Tuesday the president of the American central bank (Fed), Jerome Powell.
Posted at 3:23 p.m.
“What we really need is to get growth back down from its very high levels of last year, to slow it down but still be positive,” so that supply and demand can be at the same level, and for inflation to slow down, he said in a conversation with the Wall Street Journal.
The institution will tighten its monetary conditions sharply until there is “clear” evidence that inflation is slowing, Powell said.
If inflation is not decelerating fast enough, “then we will have to consider acting more aggressively,” he said. If the price curve was truly slowing, “then we can consider moving to a slower pace.”
The Fed started in March to raise its key rates in order to slow down inflation, which is at its highest in 40 years. After an initial increase of a quarter of a point in mid-March, it resorted to a faster increase, of half a point directly, in early May, the strongest since 2000.
Key rates are now in a range of 0.75 to 1.00%.
Further increases should be decided at the next two meetings, mid-June and end-July, probably by half a point each, repeated Jerome Powell on Tuesday.
The aim is for rates to return to a so-called “neutral” level, which neither stimulates nor slows down the economy, and is considered to be between 2.00 and 2.50%, up to 3.00%.
This level could be reached “in the fourth quarter”, underlined Jerome Powell, specifying: “we do not know for sure where the neutral rate is”.
The chairman of the powerful Federal Reserve also warned that “there is a risk that the imbalance between supply and demand in the labor market will persist”.
The United States has been experiencing a labor shortage for nearly two years. Employers struggle to find candidates and as a result increase the salaries offered, which contributes to inflation.
The labor market participation rate is changing little, and in April remained 1.2 percentage points below its February 2020 level.
“If the population increases more slowly, there will be fewer workers. This is an important element”, he detailed, underlining in particular that “in recent years, immigration has been very low”.
This could lead to lasting pressures on wages, he further commented, whose increases contribute to current inflation.
In April, wages were up 0.3% compared to March, and 5.5% year on year.
However, this jump is insufficient to offset record inflation, which admittedly slowed down a little in April, to 8.3%, according to the Commerce Department’s CPI index, but remains very close to its highest level in 40 years.